Overnight Headlines

*USD unchanged today with US and UK holidays

*US equities closed the week stronger, futures flat

*Gold above $1900 and eyeing new cycle highs, oil firmer

US equities are closed today for the Memorial Day holiday, the UK too for the Spring bank holiday, but Asian markets are better bid with indices outside Japan having rallied last week and Australia touching a fresh all-time peak. Japan is underperforming again today with disappointing April production and retail sales weighing, plus extended emergency measures.

USD gave back all its gains on Friday after shooting higher on the strong US core PCE numbers. Trade will be quiet and probably directionless with low liquidity and just German inflation numbers to check out. DXY is trading around 90 once more.

Market Thoughts – Packed calendar of risk events

Although it’s holidays in the UK and US, the first data point to take note of was Chinese manufacturing PMI which declined to 51.0 in May from 51.1 in April as new export orders declined below 50. An index for raw material costs stood at 72.8, hitting the highest level since 2010 while the demand-side suggested slacking momentum going further.

All eyes this week will be on Friday’s monthly US jobs report which will set the tone for June, as the disappointing 266k print did last month as it let the market look through any Fed reference to tapering giving the benefit of the doubt to the central bank. Fed Chair Powell speaks on Friday at a climate change conference along with the ECB’s Lagarde, and this week will be the last chance for Fed officials to talk on policy before the blackout period starts on June 5.

Other key data include the euro flash CPI figures and US ISM manufacturing out tomorrow with the latter forecast to remain broadly unchanged at the current very high level. Euro inflation is set to jump above the 2% threshold for the first time since October 2018 and grab the headlines, but again will be driven by energy base effects. There’s also an RBA meeting overnight but this is expected to be quiet as the May minutes confirmed the next stage of bond buying will be decided at the July rendez-vous.

Chart of the Day – Oil toying with the highs

Tomorrow sees the OPEC+ meeting where the cartel is expected to confirm the planned July output hike but could give some guidance about next steps and in that way influence oil markets. Crude prices are set to show a second straight month of gains with WTI rising over five per cent, with the US holiday weekend traditionally kicking off the American summer driving season. However, the high COVID cases in India and Japan, as well as the looming return of Iranian exports in the back half of the year will probably see the group continue on the current course for now.

Brent crude again struggled at the $70 handle last week, but the weekly chart shows an ascending triangle playing out. This is a continuation pattern created by a rising trendline along the swing lows and a horizontal line along the top of the swing highs. If we do see a bullish breakout, this year’s high at $71.36 is the first resistance above before May 2019 highs around $73.36 and the April 2019 spike high at $75.58. But momentum is softening and support comes in at the rising trendline below last week’s low around $66.48.